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John Schappert returns to EA. Credit: Microsoft. Electronic Arts Inc. announced it has recruited former EA executive John Schappert back from Microsoft Corp., where he was corporate vice president of interactive entertainment in the company's Xbox business. Schappert will resume his old title as EA's chief operating officer.
At the same time, EA's current chief operating officer, John Pleasants, announced he is leaving to become chief executive of Playdom Inc., a San Francisco developer of casual games played on social networks such as MySpace. Pleasants, who spent the bulk of his career running online properties such as Match.com and Ticketmaster, was hired at EA in March 2008 to help form the game publisher's online strategy.
For Schappert, the move is a homecoming of sorts. Before he joined Redmond, Wash.-based Microsoft in 2007, he was EA's COO of worldwide studios, managing 5,000 developers. Schappert is best known for founding Tiburon Studios in 1994 at the age of 20. In 1998, EA bought Tiburon, which develops the company's hugely profitable Madden football games.
Jeff Brown, a spokesman for the Redwood City, Calif., company, said EA's decision to bring Schappert back occurred before Pleasants took the Playdom gig.
"We think John Schappert is a superstar, and we're ecstatic to have him back," Brown said.
-- Alex Pham
BattleForge went from the chopping block to the pedestal in a span of two months. Credit: Phenomic / Electronic Arts.
BattleForge, a real-time strategy game from Electronic Arts, had its own life-or-death struggle this year. Under EA's financial restructuring, Phenomic, the studio that developed BattleForge, went under a microscope. Acquired in 2006, the German studio had been hard at work for three years on the title. Instead of kicking the game to the curb, as it did with a number of other titles including Tiberium, EA decided to launch the computer game in March in retail stores for 50 euros in Europe and $49.95 in the U.S. It bombed. "We were very disappointed with the sales," said Frank Gibeau, president of the Redwood City, Calif.-based company's EA Games label. Gibeau said the title sold fewer than 100,000 copies. "We had great respect for the developers, but we had to decide whether we needed to shut down the studio." The company met with Phenomic in April to break the bad news. Soon thereafter, other developers at EA noticed that the few people who bought the title were spending a large amount of money online buying virtual cards that EA sold in the game. These Pokemon-like cards conferred game characters with special skills that can be used to play the game. "The average spending per user was off the charts," Gibeau said. "If you got someone to play the game, they became passionate about it." Gibeau made a radical call -- he decided to give away BattleForge, or at least a big chunk of it, and reserved some levels and features to sell to players. What happened next surprised EA. Players of the free game ended up spending "north of 50 euros" for additional content. Some hit as much as 75 euros, Gibeau said, 50% more than what the game was selling for at retail. He declined to reveal how many copies have been downloaded since EA released BattleForge as a free title, but said that sales of virtual cards hit a record for the game last week. As a result, Phenomic pulled back from the precipice of extinction to become a role model for future game development at EA. "We have four or five projects underway now" that follow the free-to-play model that BattleForge trail-blazed, Gibeau said. "You'll see more of this throughout EA." -- Alex Pham
 The Sims 3. Credit: Maxis / Electronic Arts Stung by the backlash from the copy-protection scheme it had for Spore, Maxis today announced it would not have the same system for its upcoming game, The Sims 3.
Instead of SecuROM, a program that required online authentication to prevent pirated copies from being played, Maxis said it would revert back to the disc-based copy protection it used for The Sims 2. As a result, the anti-piracy measures for The Sims 3, due out June 2, will require users to enter a serial code to play the disc. That means players can use that disc to play the game on any machine as long as they have the code.
Here's what Rod Humble, head of the studio owned by Electronic Arts, said: We feel like this is a good, time-proven solution that makes it easy for you to play the game without DRM methods that feel overly invasive or leave you concerned about authorization server access in the distant future.
Players last fall rebelled against the SecuROM digital rights management system in Spore, which restricted to three the number of computers on which players could install the game. They punished the company by giving the game low marks in reviews on Amazon.com, driving down the average rating for the game. Two weeks after the game was released, Maxis loosened the locks and raised the limit to five computers.
-- Alex Pham
 Duck Hunt for the Nintendo Entertainment System. (Photo credit: keeping_it_real via Flickr) Lawl Mart, an independent iPhone application developer, recently learned a valuable lesson in trademark infringement: Turns out you can't replicate a company's game and sell it as your own. Who knew?
The developer released Duck Hunt early last month on the iPhone App Store. The game was a carbon copy of Nintendo's 1980s classic of the same name, in which players shoot at small ducks flying around the screen. The graphics, the sound, the signature taunting dog and even the name were all identical. Ah, nostalgia.
The sole difference was that players used their fingers, instead of the old-school plastic gun, to snipe digital ducks. (Apple just needs to manufacture a white, postmodern-looking plastic pistol, and we're golden.)
Not surprisingly, the game was removed from the App Store last week at Nintendo's request -- after having initially passed Apple's software vetting process, as reported by Macworld.
"Nintendo takes any infringement of its intellectual property very seriously and takes action as appropriate," Denise Kaigler, the company's vice president of corporate affairs, said in an e-mail.
But that's not deterring other developers from putting their own spin on the Nintendo hit. Duck Hunting and Deek's Duck Hunt each take Nintendo's core formula and ...
Read on »
Electronic Arts, the publisher of games such as The Sims and Madden NFL, today posted a deep quarterly loss. It also said it would cut 100 more jobs and close three more facilities than previously announced because holiday sales disappointed.
The Redwood City, Calif., company now plans to slice 1,100 people, or 11% of its workforce, from the payroll this year and shutter a dozen facilities in an effort to save about half a billion dollars a year.
 EA lost $641 million, or $2 a share, on sales of $1.65 billion during the crucial Christmas quarter. Much of EA's fiscal third-quarter losses stemmed from two one-time charges: $368 million related to its wireless games business and $244 million for deferred taxes.
In the earnings release, EA CEO John Riccitiello (pictured at right) said: Our holiday quarter came in below our expectations, and we have significantly reduced our financial outlook for fiscal 2009, a clear disappointment. We delivered on game quality and innovation in calendar 2008, with 13 titles rated 80 or above -- more than any third-party publisher. We expect to build on this great quality record in the year ahead while delivering more profitability.
EA said it expected to pull in $4.2 billion to $4.25 billion in sales during its current fiscal year ending March 31. It also projected a per-share loss of $3.29 to $3.56.
EA shares gained 64 cents to close at $15.50 before the earnings release but rose more than 4% in after-hours trading.
Updated, 5:15 pm: In an interview, EA Chief Financial Officer Eric Brown clarified the projected savings from the company's cost cuts. The $500 million in reduced annual spending for EA's fiscal 2010 would come from the $2.6 billion that the company had previously budgeted. Compared with this fiscal year's operating budget of $2.25 billion, however, EA would trim $150 million in expenses.
EA said every expense category would be cut back except marketing and advertising, which is expected to increase. To better promote the company's key franchises, Riccitiello told analysts during a conference call that EA would delay releasing The Sims 3, Godfather 2 and Dragon Age. Instead of coming out in this this fiscal year, which ends March 31, they'll hit stores in the next.
-- Alex Pham
Photo credit: Electronic Arts
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Electronic Arts on Friday said it would cut more jobs and close at least nine facilities amid a weakening economy and disappointing sales in North America and Europe.
The publisher of the Madden NFL football franchise, the Sims and other video game titles said it would cut 1,000 jobs, or about 10% of its workforce, and shutter at least nine out of 50 facilities, including a development studio in Vancouver, Canada. The cost-cutting measures are expected to save $120 million a year.
EA would not identify the facilities intends to close, other than the Black Box Studio in Vancouver, which created the Need for Speed and Skate titles. It is unclear how the company’s California operations, with offices in Redwood City, Playa Vista, Westwood and Emeryville, would be affected by the cuts.
“It is going to impact every division of the company in every part of the world,” said EA spokesman Jeff Brown, adding that further details may be disclosed in the first week of February, when the company reports its third quarter results.
The world’s largest game publisher earlier this month said it would be forced to trim costs, cancel some game projects and make deeper cuts than the 6% workforce reduction it announced in October. EA said it would take a charge of $55 million to $65 million over several quarters to pay for the job cuts and facility closures.
“EA, and indeed the entire industry, needs to rationalize their product lineups,” Todd Mitchell, a New York-based analyst with Kaufman Bros., told the Associated Press. “There are just too many games. Not every publisher needs to be in every genre.”
Investors reacted positively to the news. EA’s shares climbed 63 cents Friday to close at $17.39.
The video game industry has long been considered immune to economic downturns, because games are perceived as delivering hours of entertainment. But as the economy slows, retailers have grown more cautious about the number of titles they stock, concentrating on top sellers. That’s impacting even major game publishers like EA.
EA had only a single title among the top 10 games for November, Left 4 Dead, according to market researcher NPD Group. The season’s sales were dominated by games developed by Nintendo for its Wii video game console, and two popular combat games, Microsoft’s Gears of War 2 and Activision’s Call of Duty: World at War.
-- Dawn Chmielewski and Alex Pham
Photo: A screen from Madden NFL 09. Credit: Electronic Arts
 Jeetil Patel, a game industry analyst with Deutsche Bank Securities, is not known to be particularly kind in his assessments of Electronic Arts Inc. He gives the video game publisher's stock a "sell" rating, as in, "get out while you still can."
His report this morning on the Redwood City game company's announcement that it would miss financial targets for fiscal 2009 because of surprisingly slow holiday sales was characteristically scathing: The company needs to narrow its product lineup and development staff to drive operating profit dollar improvements. ... We think that EA may need to cut up to one-third of its titles and 20% of development staff to right-size the business, clearly indicating that the wrong product strategy has been employed.
In response, the game company's spokesman, Jeff Brown said, "EA is still committed to developing high-quality games and taking creative risks. We've got a solid process for the cost-cutting exercise and will do what's best for our shareholders, employees and consumers."
Patel said in an e-mail to subscribers that EA was hit by a combination of lower sales for its older titles, smaller orders from skittish retailers and a reluctance among cautious consumers to buy games that were not among the top five bestsellers. He summed up EA's troubles by saying, "Too many titles and not enough productivity per title."
As a result, he lowered his estimates of EA's sales more than 20% to $4 billion, and profit 54% to 66 cents a share. He also dropped his price target for EA's stock 31% to $13.
The company's stock got closer to that target price today: It dropped $2.35, or 12%, to $17, as investors digested the warning of a shortfall.
-- Alex Pham
Photo: Screenshot of the game Facebreaker. Credit: Electronic Arts
 Once considered impervious to a stormy economy, the video game sector is starting to show signs of strain. Electronic Arts, publisher of the Sims and the world's largest video game company, said this afternoon that it would probably miss sales and profit targets for its fiscal year ending March 2009 because of disappointing sales of several key titles.
"While we saw significant improvement in the overall quality of our key products this year, we are disappointed that our holiday slate is not meeting our sales expectations," EA Chief Executive John Riccitiello said in a statement.
As a result, the Redwood City, Calif., company will be cutting an undetermined number of jobs and canceling a number of games in its pipeline. The news follows an announcement EA made Oct. 30 to cut 6% of its workforce, which at the time was about 9,500.
"We are going to make some changes in our publishing strategy to publish fewer games but making bigger bets on them," EA spokesman Jeff Brown said today.
Brown said the company was taking this approach because sales have been concentrated in the top five titles, when in the past consumers have spread their spending more evenly among the top 10 or 20 games. Analysts agree, but they said overall game sales were still poised to grow by double digits this holiday.
"November software sales are still going to be positive in the 10% to 15% range," said John Taylor, an analyst at Arcadia Investment in Portland, Ore. "Unfortunately, other people have better seats at the table than EA. Activision is doing really well with Call of Duty. Microsoft is doing phenomenally well with Gears of War 2. And Nintendo is doing well with Wii Fit and Mario Kart. EA’s titles, on the other hand, have done somewhere between OK and a little disappointing. None of them have outperformed."
EA's shares fell $2.52, or 11.5%, to $19.35 before the announcement and an additional 9.5% in after-hours trading.
-- Alex Pham
Image from Madden NFL 08 by Electronic Arts
 Video game powerhouse Electronic Arts confirmed this afternoon that Kathy Vrabeck, president of the company's Casual Entertainment Label, had resigned "for personal reasons."
Vrabeck, one of the highest-ranking female executives in an industry dominated by men, was previously president of publishing for Activision, EA's Santa Monica-based rival. EA President John Riccitiello handpicked Vrabeck in June 2007, shortly after he took the company's helm, to help him reinvigorate the stalwart game publisher.
EA did not disclose further reasons for her departure, which was announced internally at the company Wednesday. Vrabeck, a 45-year-old Newport Coast resident, could not be reached for comment.
EA spokeswoman Trudy Muller also confirmed that the Redwood City, Calif., publisher planned to consolidate the casual games label with its Sims label as a result of Vrabeck's departure. Rod Humble, who heads the Sims Studio, has been appointed president of both divisions, effective immediately.
"Her departure provided us with the opportunity to take what we’ve learned over the past 18 months about casual games and apply it to a stronger, more efficient and more creative structure," Muller said. "We learned that there are a lot of similarities between the two labels in terms of marketing, product design and user demographics. They naturally complement each other."
Under Vrabeck, the casual games division included the company's mobile titles, online sites such as Pogo and games produced under its licenses with Hasbro and others, including the Harry Potter brand. Not all of those businesses will fall under the new Sims Casual Label. "At this time, we are evaluating the right place within EA for growth initiatives such as Pogo, Casual Online and EA Mobile," Muller said.
Vrabeck's resignation comes on the heels of an announcement last week that the publisher would cut 500 to 600 jobs, or about 6% of its workforce, to save $50 million a year.
-- Alex Pham
Photo: Kathy Vrabeck. Credit: Electronic Arts
The slumping economy just caught up to the video game industry -- and clubbed it across the head.
Electronic Arts, the publisher behind such franchises as Madden NFL and Rock Band, said today that retail sales of its games had slowed down in October -- right about the time the global financial crisis deepened. The Redwood City, Calif., company lowered its profit forecast for the all-important holiday season and said it planned to cut its workforce by about 6%, somewhere between 500 and 600 jobs, to try to save $50 million a year in expenses.
EA's shares cratered more than 15% to $23.50 in after-hours trading following its fiscal-second-quarter earnings report. Its shares had fallen 31 cents, or 1.1%, to $27.73 before the closing bell.
"Considering the slowdown at retail we’ve seen in October, we are cautious in the short term," Chief Executive John Riccitiello said in a statement. "Longer term, we are very bullish on the game sector overall and on EA in particular."
Chief Financial Officer Eric Brown said the job cuts weren't necessarily tied to the economy but were part of a broader restructuring effort the company has been undergoing since Riccitiello took the helm in early 2007. Brown said the cuts would be spread throughout the company's worldwide offices.
The game industry had been hiring furiously, especially in California, and video game sales have historically fared well during economic slowdowns. As we recently wrote in the first installment of our series about video-game jobs, the Work of Play: In recent years, the state has witnessed an explosion of new jobs and global exports from the video game business, which is expected to deliver nearly $50 billion in sales this year despite the brutal economy.
Global financial woes have dragged down game makers' stock prices and are damping consumer spending heading into the holidays, when the industry typically generates 40% of its annual revenue. Still, analysts say that video games generally hold up well during economic slowdowns, and they expect 2008 sales to reach record highs.
So far, at least, game companies say they haven't scaled back their hiring plans. The state that gave birth to Pong in 1972 has become home to more than 18,000 video game workers, nearly half of the industry's domestic workforce. Tiny companies and giant corporations are braving high taxes and the soaring cost of living to tap into the state's unique blend of engineers in the north and artists in the south.
So much for that. Instead of hiring, EA is starting to let people go and leave some open positions unfilled. The company today reported a loss of $310 million, or 97 cents a share, for the quarter ended Sept. 30. That was steeper than the loss of $195 million, or 62 cents a share, a year earlier. One bright spot was revenue: EA said sales rose 40% to $894 million, from $640 million. But it spent more to develop and market its games, hurting the bottom line.
-- Chris Gaither and Alex Pham
Photo: Scene from Facebreaker, an arcade-style boxing game from EA. Credit: Electronic Arts
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